Quantum View

Volatility was back in the financial markets in February after many months. Taking cue from global markets (especially US), S&P BSE Sensex fell 4.89% during the month. S&P BSE Mid cap and S&P BSE Small cap indices also declined during the month by 4.49% and 3.09% respectively. For the first two months of 2018 S&P BSE Sensex has given 0.46% appreciation. On the contrary, S&P BSE Mid cap and S&P BSE Small cap had fall of 6.95% and 5.67% respectively in the two month period. This came on back of negative returns in January month for mid cap/small cap indices.

FMCG, IT and metal were among the sectors which performed better than the broader benchmark S&P BSE Sensex. Banks and capital goods were the sectors which were out of favour with investors during the month. A large scale fraud at the second largest PSU bank was unearthed during the month. This could also affect other banks as the financial system is interlinked in terms of claims.

FIIs were net sellers during the month of February. They withdrew USD 1.93 Bn from stocks. Their cumulative net inflow has been USD 108 Mn in 2018 so far. Domestic institutions were buyers during the month of USD 2.7 Bn. While MFs contributed USD 2 Bn, balance USD 700 Mn came from insurance companies. DIIs have put USD 2.8 Bn to work in equities so far in 2018. Indian rupee depreciated against US dollar by 0.92% ending at 64.17.

Market Performance at a Glance

Market Returns %*

February 2018

S&P BSE SENSEX**

-4.89%

S&P BSE MIDCAP **

-4.49%

S&P BSE SMALL CAP**

-3.09%

BEST PERFORMER SECTORS

FMCG, IT and metal

LAGGARD SECTORS

Banks and capital goods

* On Total Return Basis

** Source-Bloomberg

Financial as well as equity markets saw upheavals in the month gone by. US released job report, which pointed to very low level of joblessness. This led to fears that US will raise interest rates given that economy had reached optimal level of output. Equity as well as bond markets witnessed a selloff during the month. Euro zone and Japan were two other markets which were following loose monetary policy. Europe can also increase interest rates in future with growth reviving there, while Japan has indicated that it will continue following the current path.

Rising interest rate in developed countries is likely to put pressure on equity and other financial assets in India. Given low interest rates there, lot of money is flowing to emerging markets such as India. As rates normalize, foreign investors are likely to find decent yield in home markets without taking excessive risk.

On domestic side, GDP numbers for Q3’18 showed economic growth pick up to 7.2%. of the GDP constituents, investment has seen good revival. This is an encouraging sign as investment activity has remained moribund for many years now. Growth in investment was 13% for the period and it was major contributor to GDP growth.

Macroeconomic scenario has deteriorated for India in the recent past. Inflation has increased to 5% level. This is likely to keep interest rates at higher level. Crude price has also risen and current account deficit is likely to worsen compared to past. On the other hand, corporate India has been showing better profitability recently which was missing earlier. This overtime is likely to reflect in stock performance of listed companies.

Barring a few sectors, valuations of stocks are at high levels. While share prices have run up, earning of companies are picking up now only after 4 year hiatus. High level of liquidity globally has driven up stock prices. Markets have fallen recently; any further correction could make stocks attractive. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. Investors can expect decent return from equities over a long period in future. Valuations, however, leave moderate upside in the near term. Investors at this point should continue SIPs but refrain from taking large fresh position in equities.

Data Source: Bloomberg

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

March 13, 2018Quantum Fixed Income Team

Indian Bonds extended its six months long bearish run in February as well with bond yields surging by another 15-20 basis points across the maturity curve. The benchmark 10 year government bond yield rose by 20 bps to end the month at 7.73% as against 7.43% in January 2018. Bond yields have now moved up by more than 130 bps (1.3%) since August 2017 when it had bottomed at 6.4%.

Given the extension in fiscal consolidation roadmap (to achieve the fiscal deficit of 3% of GDP only by FY21 vs earlier aim of achieving it in FY19) and government’s efforts to remunerate farmers (with higher support prices for agricultural produces), investors reassessed their outlook for both growth and inflation. RBI’s Monetary Policy Committee (MPC) has also raised concerns over the upside risks to inflation as Dr. Michael Patra quoted “inflation stripped of house rent allowance effects exceeding the target by the end of the year. Worrying that a vicious spiral could be developing – input costs; domestic prices of petroleum products; inflation expectations – as the slowdown in growth troughed and geared to pick up in the second half of the year”. While being the only member to vote for hike in policy rates, Dr. Patra also raised his concern that “the prolonged period of status quo may warrant a series of rate increases to remove excessive accommodation”. Dr. Patra is an executive director at the RBI.

On similar lines Dr. Viral Acharya (Deputy Governor of Reserve Bank of India) also highlighted that “a major concern has been the steep rise in oil prices coincidentally with (i) global rates and commodity cycles having turned up; and (ii) our fiscal deficit having overshot for this year and likely to do so next year too. Hence, even without factoring in the States’ staggered HRA implementation and MSP (minimum support price) rises announced in the Union Budget, risks to inflation seem clearly tilted on the upside”. Although the bond market was pricing in some inflationary risks, it sold off sharply post the budget and RBI policy.

The demand supply scenario remained weak even after the huge selloff witnessed in the bond market in the last seven months. The Public sector banks (PSBs) which usually act as value buyers in market selloffs, chose to stay out of the market amid huge losses on their investment books.

Global markets offered no respite as Inflation outlook in most of the developed economies is showing uptick backed by tighter labour market and improved growth trends. Investors raised the probability of four rate hikes (25 bps each) in the U.S. under the new FED chair Jerome Powell. European Central Bank and Bank of Japan also acknowledge the improved inflation prospects and started contemplating the strategy for withdrawal of unconventional monetary stimulus. Global bond yields continue to grind higher in the past few months which make the foreigners’ investments in the Indian bonds less favorable.

Despite the rising global yields and elevated commodity prices, the Indian Rupee remains fairly stable compared to the USD. The lower volatility in INR has been supporting the FPI investments in Indian bonds in this bearish market.

The FPI investment limits remained fully utilized in both the government and corporate bond segments and are due for revision in April 2018. Given the attractive real rates and comfortable reserves and external balances, any increase in FPI investment limits would be positive for the bond markets.

In the absence of PSBs and FPIs, other market participants demanding higher premiums which lead to historically high-term spreads on bonds. The 10-year benchmark bond is now trading at 170 basis points over the repo rate which is significantly higher than its long term median spread of around 70 basis points.

In view of the pressures building on inflation from higher commodity prices (especially crude oil), potential MSP (Minimum Support Prices) increases and higher government spending on rural sector, we expect RBI to remain tilted towards inflation fighting and possibly raise the rate by 25-50 basis points in the current fiscal year.

We believe the bond yields across the curve are deeply under-valued. Even with the possibility of 50 bps rate hike, the term spread of over 170 basis point (10-year bond at 7.7% and repo rate at 6%) is well above the long-term spread averages. The short-term corporate bond/CD rates have also seen a spike in the recent months. Markets clearly seem to be ‘over-pricing’ the RBI rate action and the ‘seasonal’ liquidity tightness.

Going ahead, market will closely watch the extent of MSP increases for the Kharif crops which will be available by May 2018. By that time, we would also get the first estimate of the monsoons, which given the low water reservoir levels, assumes significance for food production and prices. The RBI policy for June 2018 thus becomes a ‘Live’ one with implications on future rate trajectory against the desire and need to remain on hold for longer. Until then, the bond market trajectory would he hinged on the movement in Oil prices and Global bond yields.

Although we had projected the rise in bond yields back in August 2017, the extent of surge had been much higher than our anticipation

We continue to maintain our neutral stance on rates over the medium-term. However, we keep looking for signs of mispricing in the market and position to exploit opportunity tactically. We advise investors to have a longer time frame if they invest in bond funds and should also consider the possibility of capital losses in the short-term. Bond Mutual Funds invest in fixed income securities and unlike fixed deposits do not provide a fixed return.

For investors who are looking at debt mutual funds only for their short-term savings are better off investing in liquid funds. After a year of huge surplus, liquidity in the banking system is now close to neutral and short-term money market rates have inched up in the past few months resulting in better accrual in liquid funds. The 3 months Treasury bill which was trading close to 6.1% in November 2017 is above 6.3% now. The surge in rates on certificate of deposits and commercial papers has been even higher. In Quantum Liquid Fund (QLF) we continue to follow our conservative approach to invest in good quality and highly liquid securities and maintain minimal credit risk.

Data Source: Bloomberg, RBI

Product Labeling

Name of the Scheme

This product is suitable for investors who are seeking*

Riskometer

Quantum Liquid Fund

(An Open Ended Liquid Scheme)

• Income over the short term

• Investments in debt / money market instruments

Investors understand that their principal will be at Low risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

March 13, 2018 Quantum Alternative Investments Team

Moving past the seasonal trend, markets now focus on fundamentals and with a more hawkish tone from the new Federal Reserve Chair, one can only expect gold prices to slide down. While bullion is under pressure in an environment where the global economy is recovering and interest rates are climbing, the reappearance of inflation, the prospect of wider U.S. deficits and a long-term decline in the dollar have lent support to gold. These competing forces have corralled prices in a narrow range. Dragging gold lower this month was Federal Reserve’s upbeat assessment of U.S. economy fueling speculation of aggressive rate hikes. All in all, gold managed a close at $1318.38 an ounce, a decline of 2% for the month.

Minutes of the Federal Reserve’s January meeting show policymakers’ increasing confidence economic growth will pick up despite concerns around inflation. The latest blow came from Fed Chairman Jerome Powell’s testimony this week, which was perceived as hawkish and helped boost the dollar and bond yields. He opened the door to four interest rate hikes this year on the back of a strengthening U.S. economy and reiterating that the wild swings in financial markets have not altered Fed policy going forward. According to the FedWatch tool, the probability of four rate hikes increased from 33% to 50%.

While hiring and wages picked up in the U.S., there has been an unexpected decline in U.S. retail sales. Purchases at retailers slipped 0.3% in January, and December receipts were revised lower, this really indicates some slowdown in consumer demand. The retail sales number is one of the moving gears that can cause the Fed to actually take a step back from raising interest rates. In fact, the Federal Reserve Bank of Atlanta’s GDPNow index suggests that the U.S. gross domestic product will expand 3.25% in the first quarter, down from 4.01% in its previous release on February 9. Evidence of a rising inflationary pressure in the U.S. could also put some brakes on growth.

Outlook

The hawkish testimony to Congress by newly appointed Federal Reserve Chairman Jerome Powell resulted in a dynamic sell-off in U.S. equities. This was followed up on later in the week when President Trump proposed the implementation of tariffs on steel and aluminum. Such a proposal, if implemented, would most likely create a trade war. This would have a profoundly negative impact on the global economy. We continue to believe that the Fed is trying to use the euphoria in asset markets to normalize. They will remain very tentative in moving rates higher with the risks associated to the equity and housing markets. How many times can the Fed hike rates if the global economy weakens because of a trade war?

The U.S. trade and fiscal policies and fears about a twin deficit are strong reasons why the weakness in the dollar may continue in the medium-term. And the ballooning shortfalls in the federal budget and current account balance could mean further weakness for the dollar even as the Fed tightens.

The Fed’s balance sheet reduction rises to $50 billion per month by October. The Fed’s dot-plot predicts three more rate hikes this year and the European Central Bank (ECB) has halved its QE program and is predicted to completely finish printing money by the end of this year. Exploding debt and the reversal of central bank support for bonds should cause rates to spike. The impact of lesser money will be felt over time by the markets and the euphoria on tax cut optimism, liquidity and higher asset prices will likely come to an end this year. The recent correction in risk assets seems to be an early indication of just that.

For now, the Fed seems to be keen to use the euphoria in order to push the normalization of monetary policy. We don’t expect real rates to move up too much. After the December increase in rates, there would perhaps be another two hikes in 2018 at the maximum. By contrast, the so-called dot-plot of individual policymakers shows that they envision three more next year. There is a material difference between reductions in liquidity infusion vis-à-vis withdrawing liquidity. The Fed’s balance sheet normalization would push rates higher and therefore impact the Fed’s resolve for rate-hike trajectory they envision today. Feds attempt to get ahead of its QE unwind may provide investors with a buying opportunity in gold before adversely impacting market and economy.

Currently, financial markets are almost exclusively focused on the planned normalization of monetary policy. Almost no-one seems to expect an impending recession or a return to loose monetary policy. Investors will do well to remember that, so far, the Fed has been behind the curve and only delivered when markets brought it on a silver platter. Since the normalization of monetary policy hasn't progressed sufficiently yet, renewed stimulus measures would probably shake market confidence in the efficacy and sustainability of the unconventional monetary experiments applied to date.

The world continues to remain in a state of great disequilibrium, both with respect to the global economy and geopolitics as well. The fallout of the geopolitics globally seems to now cap the downsides in gold. Given the macroeconomic picture, gold will be a useful portfolio diversification tool and thereby helping you to reduce overall portfolio risk.

Source: Bloomberg

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

August 14, 2017

Transparency at all Times

First and foremost Happy Independence Day to all our investors.

This year marks 70 years of India being a free nation as we celebrate our 71st Independence Day. Much has changed from the time Pandit Nehru took the reins of an independent India. An economy, for which a 4% growth was considered great, has now grown leaps and bounds. India has evolved from a predominantly agriculture driven economy to a manufacturing and services driven economy. Progress has been made, though not as rapidly as we would like, but we hope that the country will move in the right direction in the long term.

In the world of Mutual Funds, a lot has changed for good and many new norms have been introduced by the market regulator SEBI to make the mutual funds a suitable investment avenue for investors. With an aim to bring in greater transparency in dealings of mutual funds, last year SEBI asked AMCs to disclose the absolute commission paid to the distributors as against the investments garnered from subscribers in each MF scheme as a part of Consolidated Account Statement. This was one of the many positive reforms undertaken by the Regulator. While we hope SEBI continues setting rules that benefit investors, there is one place we are looking forward to the market regulator focusing on and that is using Mark to Market (MTM) for NAV of Liquid funds. Why is this important? Let’s go back in year 2013. Liquid funds had felt the jolt in the month of July, 2013. This happened when the RBI, on 15th and 23rd July 2013, decided to introduce liquidity tightening measures to address the issue of currency volatility and depreciation. As a result of these liquidity tightening measures, the liquid funds saw a fall in their NAV, as short term interest rates rose sharply.

The NAV of the Quantum Liquid Fund (QLF) plunged on 16th July, 2013 then regained some ground as market stabilized and, due to volatile markets, fell down again.

Given that the QLF NAV is completely MTM (Marked to Market), as compared to its peers the impact of these market movements are felt daily and thus the movement in the NAV will remain exaggerated till the markets settle down again. As investments are MTM in QLF, the impact of a large redemption would be equally felt by all investors as against its peers who follow amortization process where redemptions impacts the investors who remain invested in the fund.

Since the Quantum Liquid Fund invests in money market and debt instruments of less than 91 days maturity period, the fund relies largely on the accrued interest income from its securities to derive value rather than from capital gains. Following the process of amortization, as is the normal method of evaluation of the assets of a Liquid Fund when valued on a daily basis does not tell the investor whether the reported NAV is actually the current transactable NAV. Which means that if the fund is to be liquidated tomorrow, whether the assets would fetch the same valuation as noted in NAV cannot be affirmed as market values of the assets might be higher or lower than the current amortized value depending on the current market interest rates. Since, June 2012 Quantum Liquid Fund was able to move towards fair value method of MTM, owing to the availability of market traded prices in a transparent manner. All this, only to ensure, fair treatment to all investors seeking to purchase or redeem the units of the scheme at all points of time.

Therefore at Quantum Mutual Fund we believe in the principles of honesty and we need to follow a disciplined investment process, adhere transparency and offer low cost products that helps you meet your financial goals.

Product Labeling

Name of the Scheme

This product is suitable for investors who are seeking*

Riskometer

Quantum Liquid Fund (An Open Ended Liquid Scheme)

• Income over the short term

• Investments in debt / money market instruments

Investors understand that their principal will be at Low risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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